What are Section 80JJA and Section 80IA of the Income Tax Act, 1961?

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What are Section 80JJA and Section 80IA of the Income Tax Act, 1961?

Due to the rise in environmental challenges, the Government of India has taken several initiatives to support sustainable living practices in the country. Businesses that choose  sustainable practices help the environment and are rewarded by the government through tax exemptions under Section 80JJA and Section 80IA of the Income Tax Act, 1961.

In this article, we will discuss what Section 80JJA and Section 80IA of the Income Tax Act, 1961 are and the eligible businesses for claiming tax deduction under these sections.

Tax Exemptions for Businesses

Businesses that follow sustainable practices help the environment by reducing their carbon footprint and also get the chance to reduce their electricity bills. Such businesses are eligible for certain tax exemptions under two sections of the Income Tax Act. Let’s discuss these sections. 

Section 80JJA of the Income Tax Act

According to the Section 80JJA of the Income Tax Act, 1961, businesses can claim deductions for profits and gains derived from the collection and processing of waste which is biodegradable. The purpose of this section is to encourage investment in sustainable practices such as power generation, production of bio-fertilizers and so on, to contribute to the overall goal of sustainable living as well as reducing tax liabilities 

Who is Eligible for Tax Exemption under Section 80JJA?

The tax deduction under this section relates to the income from business and applies to individuals or entities who have hired additional employees in a given fiscal year. This section enables the employers to claim a deduction of up to 190% of the additional employee costs incurred while employing new eligible employees.

No deduction shall be allowed if the business is formed by splitting up or reconstruction of a business which already exists. If the business is acquired by the assessee by the way of transfer from any other person or as a result of any business reorganization the tax deduction under this section is not applicable.

Additional Employee as per Section 80JJAA

According to Section 80JJAA, an additional employee is an individual who has been employed during the previous year but doesn’t include:

• An employee whose salary exceeds Rs. 25,000 in a month.
• An employee who was employed for less than 240 days in the previous year. For an employee who is engaged in apparel/footwear/leather goods’ manufacturing business, a period of at least 150 days of employment is required.
• An employee who doesn’t participate in a recognized provident fund. A casual worker is one example of such an employee.
• An employee for whom the Government of India pays the entire contribution under the Employees’ Pension Scheme in accordance with the provisions of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.

Section 80IA of the Income Tax Act

This section provides tax benefits to businesses that operate in specific sections like power and distribution through solar and wind energy. Section 80IA allows for such businesses to claim 100% of their profits for up to 10 consecutive years. The purpose of this section is to encourage investments in the critical sectors and contribute to sustainable development which does not harm the environment.

It is important to note that exemption under this section is only accessible in case the earnings come from legitimate commercial activities. There will be no exemption for the funds received from non-eligible activities.

Who is Eligible for Tax Deduction under Section 80IA?

Your business is eligible for claiming deduction under section 80IA if it is engaged in the following:

• Development, maintenance and operation of any infrastructure facility on or after 1st April, 1995.
• The company or a consortium must be registered in India or by an authority constituted under any central/state act.

Types of Projects Covered Under Section 80IA

The following projects are covered under Section 80IA of the Income Tax Act, 1961, and are therefore eligible for tax deduction under this section:

• A project for an industrial park’s development
• A project for the development of an area designated in a notification issued under Special Economic Zone Act, 2005.
• A project for providing telecommunication services.
• A project focused on the manufacture of goods or rendering specified services.
• A projection for the generation, transmission or distribution of power or water or both.

Let’s discuss each project type in detail.

• Infrastructure facilities: These include toll roads, bridges, rail systems and housing related to highway projects. Additionally, water projects related to water treatment, irrigating, sewerage, sanitation and solid waste management systems can also be eligible for deductions. Apart from these projects, ports, inland waterways, airports, inland ports and navigational channels are also eligible for claiming deduction.
• Telecommunication Services: A telecom business that offers basic and mobile communications services, such as radio paging, internet services, broadband networks, domestic satellite service, and trunking network are also eligible for deduction. However, there are two kinds of limitations when we talk about the requirements of telecom services. Developing by splitting or restructuring an already used business is restricted. Similarly, transferring machinery/plant that’s already been used is also restricted for tax deduction.
• Industrial Parks and SEZ: Industrial parks and SEZs require companies which develop, manage and operate them. These companies function according to rules imposed by the Central Government, and are eligible for deduction under section 80IA.
• Generation and Distribution of Power: A power plant that was established in India for production or generation or distribution of power that is established anywhere in India is eligible for tax deduction. 
• Reconstruction of Power Plant: Businesses that are involved in the reconstruction or revival of a power-generating plant owned by an Indian company can claim a deduction under this section.
• Distribution of Natural Gas: An undertaking held by an Indian company engaged in the business of laying and operating a cross-country natural gas distribution network, including pipelines and storage facilities which are vital components of such a network is eligible for a deduction.

Why Should You Go Green?

Going green isn’t only beneficial for the earth but it is also good for your wallet. Green building initiatives are changing the way we construct and live, and make our homes and workplaces not only comfortable but also resource-efficient. The Government of India has put forth numerous incentives for individuals and companies who choose to opt for green building practices.

Going green doesn’t just save your money on taxes but also opens doors to low interest loans offered by IREDA (Indian Renewable Energy Development Agency Limited) for green-certified projects, faster approval processes and expedited inspections for green building, reduced building fees for green-certified buildings, property tax reductions and stamp duty exemptions for green-certified projects in certain states and state-level subsidies and exemptions for energy-efficient buildings and renewable energy initiatives.  

Summing Up

By adopting sustainable practices and leveraging the tax benefits under the Income Tax Act, 1961, businesses can bring about positive change for the environment and their wallet. Every watt saved, every green mile driven and every eco-conscious choice causes a ripple effect of positive environmental impact. To work on your green goals, you can start a renewable energy business and take advantage of tax exemptions under Section 80JJA and Section 80IA. For assistance, connect with Registrationwala for company registration for green energy business!

Disclaimer: This blog post is solely meant for educational purposes. The tax exemptions and deductions mentioned are subject to change without notice. We do not recommend making any financial decisions based on the information provided in this blog post. It is advised to consult your financial advisor before making any financial decision.

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